Page 104 - P6 Slide - Taxation - Lecture Day 1

Solution (inventory)

Amount of the reduction in the debt - R500 000 - applied to reduce the cost
price of the trading stock still held at the time of the reduction of the debt.

The deduction for the trading stock purchased under s 11(a) will be reduced
to Rnil. Therefore R430 000 of the debt reduction is applied against the
purchase price of the stock still on hand at date of the debt reduction.

Note that no reduction is made against the R70 000 of trading stock already

sold, since it is no longer part of trading stock at the time of the debt
reduction, as required under s 19(3).

Purchase of trading stock (s 11(a)) (430 000)

Debt reduction under s 19(3) 430 000

Recoupment (s 8(4)(a)) R70 000

• The remaining R70 000 of the debt reduction will be a deemed

recoupment in income under s 8(4)(a) (s 19(4)).